What American liberals could learn from South Africa

Vehicles pass by a new building under construction in Johannesburg on Thursday. (AP Photo/Denis Farrell)

South Africa has the world’s most progressive tax system, according to a new report. South Africa is also, by another measure, the world’s most unequal country — making it a cautionary example for U.S. liberals about the limited power of taxation to remedy inequality.

Yes, taxing the rich more and the poor less can have benefits, but many experts argue inequality is more meaningfully addressed by spending on public programs that provide for people’s basic needs while giving them an opportunity to get ahead.

In particular, that requires ensuring people have access to education, training, transportation and health care. And funding those enterprises requires more than just soaking the rich. In northern European countries — where economists have found that people who are born poor are more likely to make it into the middle class — governments also rely on broad taxes that force the middle class to pay more as well.

“The basic story is taxes do not change the income distribution,” said Graham Glenday, a tax scholar at Duke University who was born in Cape Town, South Africa and plans to retire there.

“Changing the income distribution is much more of a dynamic thing that comes about if poor people can actually move up,” he said. “That obviously takes, sometimes, generations.”

The new report, published Sunday by Oxfam, ranks 152 countries on how well their economic policies are designed to address inequality. South Africa ranks first on taxation. The rich pay steeper rates, the corporate tax is hard to shirk and a national value-added tax includes exemptions for food and other staples that are major expenses for the poor.

“It’s quite an efficient system that tries, to the extent that’s possible, to really, kind of, balance the equation,” said Sipho Mthathi, the director of Oxfam South Africa. “It is one of the most efficient tax systems in the world.”

But despite ranking first in tax redistribution, South Africa ranks slides to 21st in the overall measure of addressing inequality, just ahead of the United States at 23rd. A poor score on the labor market — South Africa does not have a minimum wage, for example — brings down the country’s general ranking.

The other countries in the top 25 are all developed nations, almost all of them in Europe. Sweden ranks first, followed by Belgium, Denmark and Norway.